Crypto: Coinbase in the crosshairs of the US stock market cop

Not to be left behind by the competition, Coinbase has continued to add new cryptocurrencies to its platform. But the SEC suspects the platform of offering its users securities that should be registered in its eyes.

The noose tightens around Coinbase. While the US company bears the brunt of the cryptocurrency crisis, it now faces an investigation by the US stock market policeman, the SEC (Securities and Exchange Commission), reveals Bloomberg.

Anxious not to be left behind by the competition, Coinbase has continued to add new cryptocurrencies to its platform. But for the US regulator, some of these tokens fall under the legislation regarding securities. In other words, the SEC suspects Coinbase of offering its users securities that should be registered in its eyes.

If this were the case, it would mean that the US platform would have to apply for a change of status with the SEC in order to be allowed to offer its users access to the titles in question. In this context, the regulator will therefore conduct in-depth investigations into Coinbase’s activation practices to determine whether they are fraudulent or not. The San Francisco-based company already has a clear opinion on the matter. On July 22, 2022, Paul Grewal, Chief Legal Officer of Coinbase, published an evocatively titled op-ed on the company’s blog: “Coinbase not showing securities, end of story”.

Former Coinbase CEO Accused of Insider Trading

The aggressive tone of the platform testifies to the nervousness currently prevailing in its workforce. And with good reason, a few days ago the SEC charged a former Coinbase executive as well as his brother and a friend with insider trading. The latter is accused of carrying out illegal transactions on at least 25 cryptoassets for a profit of 1.5 million dollars on the basis of confidential information. At the heart of this scheme to collect this jackpot, we find Ishan Wahi, former product manager at Coinbase, in the team responsible for listing cryptocurrencies on the platform.

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Due to its privileged position, the latter had prior access to sensitive information, such as the calendar for registration of new cryptoassets on Coinbase. According to the SEC, Ishan Wahi used his status with the company to inform his brother, Nikhil Wahi, and a friend, Sameer Ramani, between June 2021 and April 2022 of upcoming cryptocurrency listings on the platform so that they could trade in the relevant virtual assets before they are publicly introduced on Coinbase.

When the new cryptocurrencies were listed on the platform, their price rose sharply, significantly enriching the trio. Despite the precautions taken to remain undisclosed, notably using anonymous ethereum wallets, a Twitter account gave the warning last April, prompting US authorities to seize the file. Ishan and Nikhil Wahi have been arrested while Sameer Ramani remains at large.

18% of the workforce will be cut

This case is therefore testing the nerves of the managers of Coinbase, while the platform is going through a difficult period. Shaken since the crypto crash, the company is no longer even in the top 10 cryptocurrency exchange platforms, according to a report by investment bank Mizuho Securities cited by Bloomberg.

Even worse, Coinbase is no longer the world’s leading bitcoin exchange, now dethroned by Binance, according to data from Glassnode. In this delicate context, Coinbase decided to lay off 18% of its workforce, or approximately 1,100 positions, in mid-June, while its valuation had been split nearly seven times in a year.

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